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Financial Globalization and Monetary Policy Discipline: A Survey With New Evidence from Financial Remoteness

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  • Mark M Spiegel

Abstract

The literature appears to have reached a consensus that financial globalization has had a “disciplining effect” on monetary policy, as it has reduced the returns from—and hence the temptation for—using monetary policy to stabilize output. As a result, monetary policy over recent years has placed more emphasis on stabilizing inflation, resulting in reduced inflation and greater output stability. However, this consensus has not been accompanied by convincing empirical evidence that such a relationship exists. One reason is likely to be that de facto measures of financial globalization are endogenous, and that instruments for financial globalization are elusive. This paper introduces a new instrument—financial remoteness—as a plausibly exogenous instrument for financial openness. It examines the relationship between financial globalization and median inflation levels over an 11-year cross-section from 1994 through 2004, as well as a panel of five-year median inflation levels between 1980 and 2004. The results confirm a negative relationship between median inflation and financial globalization in the base specification, but this relationship is sensitive to the inclusion of conditioning variables or country fixed effects, precluding any strong inferences. IMF Staff Papers (2009) 56, 198–221. doi:10.1057/imfsp.2008.34; published online 3 February 2009

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  • Mark M Spiegel, 2009. "Financial Globalization and Monetary Policy Discipline: A Survey With New Evidence from Financial Remoteness," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 198-221, April.
    • Handle: RePEc:pal:imfstp:v:56:y:2009:i:1:p:198-221
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    Cited by:

    1. Pierre-Richard Agénor, 2015. "L’intégration financière internationale : Théories, évidences, et leçons des expériences récentes [International financial integration: Theory, evidence and lessons from recent experiences]," Research papers & Policy papers 1508, Policy Center for the New South.
    2. Linda S. Goldberg, 2013. "Banking globalization, transmission, and monetary policy autonomy," Staff Reports 640, Federal Reserve Bank of New York.
    3. Igor Da Silva Veiga & Helder Ferreira De Mendonça, 2014. "Financial Openness And Inflationtargeting: An Analysis For The Unpleasant Fiscal Arithmetic," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 059, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    4. Liu, Zheng & Spiegel, Mark M. & Zhang, Jingyi, 2023. "Capital flows and income inequality," Journal of International Economics, Elsevier, vol. 144(C).
    5. Kose, M. Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2010. "Financial Globalization and Economic Policies," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4283-4359, Elsevier.
    6. de Mendonça, Helder Ferreira & Nascimento, Natalia Cunha, 2020. "Monetary policy efficiency and macroeconomic stability: Do financial openness and economic globalization matter?," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    7. Caprio, Gerard & D’Apice, Vincenzo & Ferri, Giovanni & Puopolo, Giovanni Walter, 2014. "Macro-financial determinants of the great financial crisis: Implications for financial regulation," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 114-129.
    8. Steven B. Kamin, 2010. "Financial globalization and monetary policy," International Finance Discussion Papers 1002, Board of Governors of the Federal Reserve System (U.S.).
    9. Steiner, Andreas Christian & Saadma, Torsten, 2016. "Measuring De Facto Financial Openness: A New Index," VfS Annual Conference 2016 (Augsburg): Demographic Change 145575, Verein für Socialpolitik / German Economic Association.
    10. de Mendonça, Helder Ferreira & da Silva Veiga, Igor, 2014. "A Note On Openness And Inflation Targeting: Implications For The Unpleasant Fiscal Arithmetic," Macroeconomic Dynamics, Cambridge University Press, vol. 18(5), pages 1187-1207, July.
    11. Oyadeyi, Olajide & Akinbobola, Temidayo, 2022. "Financial Development and the Current Account in Nigeria," MPRA Paper 118001, University Library of Munich, Germany.
    12. Jamshed Y. Uppal, 2011. "Government Budget Deficits and the Development of the Bond Market in Pakistan: Issues and Challenges," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 159-198, September.
    13. Alpaslan AKÇORAOĞLU, 2012. "Yeni Açık Ekonomi Makroiktisat Teorisi ve Para Politikasının Uluslararası Boyutları," Ekonomik Yaklasim, Ekonomik Yaklasim Association, vol. 23(85), pages 57-82.

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